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Campbell's Cuts: CBA serving purpose of driving up franchise values

Alex Ovechkin inked a 13-year $124 million contract with the Capitals last season. (Photo by Mitchell Layton/NHLI via Getty Images)

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Alex Ovechkin inked a 13-year $124 million contract with the Capitals last season. (Photo by Mitchell Layton/NHLI via Getty Images)

Guys like George Gillett gave up a season of profits so that guys like Ted Leonsis could have a better chance to make some of their own. But, three years after the lockout, the collective bargaining agreement does not seem to be working so great for either of them.

The lockout was supposed to be about keeping player costs in line, but Gillett looks at the money he is paying out and notices that with what his team pays into player salaries and revenue sharing, he is putting out more money than he did prior to the lockout. He owns the Montreal Canadiens.

The lockout was supposed to level the financial playing field and give everyone a chance to make a profit. Leonsis looks at his bottom line and sees he is still losing money and will do so again this season. In order for him to start making any money, the stars will have to align as they never have before. He owns the Washington Capitals.

So, the new CBA does not really help the large-market teams such as the Canadiens, who are now spending more than they did before. And it is not helping the smaller guys such as Leonsis who continue to lose gobs of money.

“Overall I’m much happier than I was pre-lockout,” Leonsis said. “I would say all the arrows are green.”

But all the ink remains red. In fact, Leonsis said in order for the Capitals to put themselves in a money-making situation, overall league revenues would have to actually grow more slowly than they have so far.

“Then the cap would not grow as fast,” Leonsis said. “So let’s say the cap only grows $1 million or $2 million next year and we grow our revenues $10 million. We’re at the top of the cap and if it stayed there and we had a good year and we sold $10 million worth of tickets the following year…because you could raise prices and sell it out and make the playoffs. There’s a path to profitability.”

But, holy cow Batman, how much clearing do you have to do to get there? So, in order for the Capitals to make money, the team has to have a monster season this year, they have to sell the place out on a consistent basis, have a long playoff run, then raise the price of tickets next year and do it all again.

Meanwhile, back in Montreal, Gillett sees the mighty NFL is trying to reconfigure an agreement that sees the players get a lower percentage of the league revenues than they are getting now. In the NFL, players get about 59 percent of revenues. In the NHL, the players got 55.6 percent of the $2.32 billion in revenues for 2006-07. The numbers for last season are not in yet, but if they go up to $2.5 billion, the players will get 56.25 percent and if they hit $2.7 billion, the players will get 57 percent.

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“We’re paying substantially more in revenue sharing (and salaries) than we’re saving against the old system,” Gillett said. “Some of these things are going to need examination.”

One of the big problems with the CBA is that it works on a macro scale, but not a micro one. Having salaries tied to revenues sounds like a good thing, but it is only good if your revenues grow along with the rest of the league. For Leonsis to make money, he essentially has to hope other teams suffer while he increases his business. And for Gillett to increase his profits, he also needs to see the league suffer financially to bring down his player costs.

How screwy is that? In order for both powerful and small-market teams to make money, the macro and micro cannot line up.

“It’s almost like the NHL, at least from the cap and players’ standpoint, are aside and apart from reality,” Leonsis said. “And I just hope everyone in pro sports realizes how blessed we are that salaries are going up, franchise values for the most part are going up and revenues are going up. That’s not what’s happening in the real world.”

All of which confirms what I have thought all along. The lockout was not about getting costs in line or keeping ticket prices affordable. It was about one thing – franchise values. Even if Gillett is not making as much money as before the lockout, the man who bought the Canadiens and the Bell Centre for $250 million when nobody else wanted it, has watched the value of his asset skyrocket.

And even if the Capitals continue to lose money, Leonsis acknowledges his franchise is worth more now. The only problem is that Leonsis says he never intends to sell the Capitals.

But any system that forces people to sell in order to recoup their losses is fundamentally flawed. Luckily, the two sides still have four more years to figure out how to get it right.

 

Ken Campbell is a senior writer for The Hockey News and a regular contributor to THN.com. His blog appears Wednesday and Fridays and his column, Campbell's Cuts, appears Mondays.

For more great profiles, news and views from the world of hockey, Subscribe to The Hockey News magazine.

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